Simon C. Parker

A Time Series Model of Self-employment under Uncertainty

This paper applies the techniques of stochastic optimal control to the problem of price-taking agents choosing the optimal balance between self-employment and paid employment. The two principal innovations are the development of an intertemporal optimizing model for heterogeneous agents under conditions of uncertainty, and the application of multivariate maximum likelihood cointegration techniques to test the model and to obtain estimates of the long-run and short-run determinants of self-employment. Both risk and expected returns are found to affect the numbers in self-employment in the long run; there is also evidence that the interest rate acts as a barrier to entry in reducing self-employment in the short run and the long run. Copyright 1996 by The London School of Economics and Political Science.

Explaining International Variations in Self-Employment: Evidence from a Panel of OECD Countries

Organisation for Economic Cooperation and Development (OECD) data from 1972 to 1996 reveals substantial differences in the levels and trends of self-employment rates across countries. This article uses recently developed panel integration and cointegration techniques to explore the determinants of aggregate self-employment rates. We find that within the panel, self-employment rates are positively and significantly related to personal income tax rates and negatively and significantly related to the unemployment benefit replacement rate. This accords a central role to government tax and transfer policies, in contrast to nonrobust influences from macroeconomic variables, which have been widely used in previous studies.

The Effects of Risk on Self-Employment

The effects of sectoral risk on the propensity to become self-employed are analysed. In contrast to previous studies which assume risk is concentrated only in the self-employment sector, a general equilibrium model is constructed in which uninsurable risk exists in both the paid- and self-employed sectors. It is shown that when agents wish to mix self-employment and employee participation, the effects of sectoral risk on the optimal self-employment decision is ambiguous. This result disappears if agents choose instead to participate in one sector alone.

Do Banks Ration Credit to New Enterprises? And Should Governments Intervene?

Do banks deny credit to new start-ups? The presumption that they do has motivated government intervention in several forms, including publicly backed loan guarantee schemes in the UK and elsewhere. This paper presents an overview of the modern theory and evidence of credit rationing, and concludes that the case for credit rationing is weak. Ultimately, theoretical arguments for or against credit rationing are inconclusive, so evidence is needed to decide the issue. The evidence is not supportive of the view that credit rationing is an important or widespread phenomenon. Copyright 2002 by Scottish Economic Society.

The Interrelationships between Births and Deaths

This paper provides a preliminary study of the way in which the births and deaths of firms interactover time. It uses the retailing sector as a case study, although the results also have relevance for other sectors. Section I of the paper introduces the background to the paper. Section II provides a non mathematical theoretical framework for analysing the births/deaths interrelationship. It identifies three separate types of effect operative in these interrelationships: the “competition”, “multiplier” and Marshall (“life cycle”) effects. The data used in this study (Value Added Tax registrations and deregistrations) and their limitations are considered in Section III. Section IV presents the preliminary empirical results. This section utilises panel data vector autoregression techniques to identify the salient birth-death relationships. The final section concludes the paper and draws out possible policy conclusions. It also suggests avenues for further work.

The retirement behaviour of the self-employed in Britain

We analyze the retirement behaviour of older self-employed workers, using a life cycle framework and a multinomial logit model of dynamic employment and retirement choices. Using data from the two-wave Retirement Survey, we find that greater actual or potential earnings decrease the probability of retirement among the self-employed. In contrast to employees, none of gender, health or family circumstances appear to affect self-employed retirement decisions. The dynamic analysis reveals that relatively few employees and virtually no retirees switch into self-employment in later life. The switches that do occur are motivated less by attempts to use self-employment as a bridge job or ‘stepping stone’ to full retirement, than by self-employment being a last resort for less affluent workers with job histories of weak attachment to the labour market. We compare self-employed and employee retirement behaviour and discuss the policy implications of our results.

Family Finance and New Business Start‐ups

After bank finance, borrowing from family and friends is the chief source of funds for new business start-ups in many countries, including the UK. Yet there has been virtually no treatment of this issue in the literature to date. We rectify this omission by developing a model of lending behaviour in which family members may have selfish or altruistic motives. We identify the key determinants of family lending using a unique data on Asian entrepreneurs in Britain. Copyright 2001 by Blackwell Publishing Ltd

Emerging Firms And The Allocation Of Control Rights: A Bayesian Approach

This paper suggests that founders often use firm formation to exploit opportunities and must sometimes make organizing decisions about the allocation of control before the economic value of the opportunity can reliably be known even probabilistically. Motivated by questions surroundings such settings, we use incomplete contract theory and apply a Bayesian learning model to the allocation process of ownership control rights of founders in emerging firms. This model examines how founders learn and build on their prior beliefs, enabling them to allocate and change ownership control rights under differing conditions of risk and uncertainty.

The generalised beta as a model for the distribution of earnings

Abstract We present a neoclassical model of optimising firm behaviour, which predicts the earnings distribution to follow the flexible and well-known generalised beta distribution of the second kind.

Is entrepreneurship a leading or lagging indicator of the business cycle? Evidence from UK self-employment data

Previous studies provide suggestive evidence that entrepreneurship varies with the state of the business cycle. This article extends the knowledge base by exploring whether the rate of self-employment – a widely used measure of entrepreneurship – is a lagging or leading indicator of the business cycle. The study, which utilizes time series UK data on aggregate output, unemployment and self-employment rates, is robust to structural breaks in the cyclical relationships between these variables. The study finds evidence of significant bi-directional causality: that is, entrepreneurship both causes and is caused by business cycles. The covariance of entrepreneurship is positive with respect to output and negative with respect to unemployment.